Recommendations for Payees considering structured settlement transfers

Before entering into a structured settlement transfer transaction, an individual who is receiving structured settlement payments should:

• Do some your research and ask some questions. Talk to several funding companies. Get multiple offers. Even if you decide to speak with only one company, ask them to give you 2-3 different proposals, if possible, involving different payment streams.
  
• Take steps to understand the court approval process. Ask questions about how long the court approval process will take. Talk to the attorney who will be handling the court proceeding and/or hearing for the funding company. Ask the attorney questions about the Judge who will be reviewing the transaction. Read the pleadings that are filed in court.
  
• Don’t oversell and don’t undersell. Avoid selling more payments than you need to address your need and/or achieve your objectives. If you only need $45,000 to pay off your debts and car and to get caught up on your house payments, don’t enter into a contract to raise $ 400,000 transactions in order to put the rest of the money in the bank for a rainy day. BUT, don’t undersell either. The court approval process is expensive for the funding company and uncertain for all parties. If you find that you did not complete a large enough transaction in your first transaction and then you try to complete another transaction with the same funding company 2 months later, you could find it difficult. The Judge may be concerned that you are not managing your finances appropriately.
  
• Be prepared to provide private and confidential information to the funding company, the attorney handling the transfer matter, and the court regarding your personal and financial circumstances. The court approval process is conducted in a public forum, the court. In order to present the transaction to the court for approval, the funding company and transfer attorney will need to receive information about your finances. That information should only be used for securing court approval of the transaction. Hopefully, most Judges are understanding and sensitive to the intrusive nature of the court review process and the private and confidential information which you may be asked to provide. NASP members and their counsel are sensitive to these matters, but the goal is to secure approval of the transaction on your behalf, so you must provide full and complete information.
  
• Be honest with the funding company and the court and have a plan. Articulate that plan.
  
• Be confident, positive, and persistent, but respectful of the court and the process. Most Judges are there to look out for your interest. They are not there to hassle you or invade your privacy. You have done nothing wrong. You are pursuing a transaction that is allowed under the law and the structured settlement payments belong to you. Some Judges would prefer not to be required by law to approve an arms-length financial transaction by an adult, but they do take their responsibilities seriously and they are required to look out for your interests.
  
• Things to watch out for in these transactions:
  
  • Promises that a deal can be closed withinin 2 weeks after the contract is signed. The court approval process takes time. It differs from state to state and from court to court. If someone tells you that you will have your money in 2 weeks, be skeptical and ask questions.
    
  • Read the disclosure before signing a contract and know the terms of the transaction before doing so.
    
• Read the contract. Be wary of the following:
  
  • Improper use of contractual arbitration provisions. (There are court cases where a funding company has been found to have improperly use an arbitration provision to attempt to complete a transfer without court approval under a Transfer Statute and/or to seize a payee’s payments, even after a proposed transfer was denied by a court.) Court approval of transfers is required and protects the parties to the transaction, including insuring that the transaction will not be subject to a Federal excise tax.
    
  • Rights of first refusal. A right of first refusal is a “transfer” under a Transfer Statute. One funding company [not a NASP member] has inserted a right of first refusal in their transfer agreement and has taken the position that said right of first refusal is enforceable against the payee even if the contemplated transfer which is the subject of the transfer agreement that included the right of first refusal is not court-approved.
    
  • The right of first refusal may obligate the payee to provide the funding company the opportunity to match any future offer received by the payee. This can hinder the payee’s opportunities and rights to complete future transactions.
    
  • Security interest is also a transfer, subject to a Transfer Statute. Many funding companies include an alternative security interest provision in their transfer agreement that provides that the payments to be transferred and assigned are also subject to a security interest in favor of the funding company. Such use of an alternative security interest provision is not improper.
    
  • However, a payee should resist granting a security interest to a funding company funding company in all of the payees future structured settlement payments in the context of a court-ordered transaction. There is no need for a funding company to receive a security interest in payments beyond those that are assigned to the funding company in the transfer order.
    
  • At least one non-NASP funding company has attempted to enforce a security interest in a transfer agreement against payees even when the transaction that was the subject of the transfer agreement was rejected by the court.
    
• Some funding companies review court filings and when they discover a pending or recent court case involving a transfer and they may solicit the payee to complete an additional or alternative transaction. Don’t be persuaded to pursue a transaction if you do not want to do so. Be particularly wary of a company that sends you a contract in the mail without having spoken to you or reached an agreement with you.
  
• Be wary of direct mail communications about structured settlement payments that are vague about who sent them or which suggest that your structured settlement payment rights are in jeopardy and you should therefore liquidate them quickly.
  
• Funding companies have very few options to make payees aware of their liquidity options, other than to advertise – i.e. TV, radio, print, internet. Advertising is how payees learn that there are companies who are willing to purchase their structured settlement payments and is therefore important. But, understand that when you enter into these transactions, you are giving up a portion of your future payments in order to get a lump sum now. One should not enter into these transactions lightly. Recognize advertising for what it is – a way for funding companies to introduce themselves to you.